Stocks inch up on quick economic revival hopes

LONDON (Reuters) – World stocks inched higher on Monday, adding to a 42% surge from their March lows, as a surprise jump in last week’s US employment data fueled hopes of a quicker global economic recovery from the coronavirus pandemic.

The MSCI all-country world stocks index, which covers 49 markets around the world, was 0.1% higher and just 7% away from a fresh record high. The benchmark S&P 500 is within striking distance of turning positive for the year.

In Europe, a surge in travel and leisure stocks helped cap losses on the pan-regional index, which traded 0.2% lower after poor German and Chinese economic data.

Asia shares rose in a catchup rally following Friday’s US jobs data, but were again capped by the Chinese data, published on Sunday, which showed exports contracted in May.

German industrial output, meanwhile, slumped a record 17.9% in April and firms now expect a bumpy road ahead despite a massive stimulus package.

“European stocks are probably under pressure following weak China data overnight. However, we do not think this marks the end of the rally,” said Marija Vertimane, senior strategist at State Street Global Markets.

US S&P 500 futures were 0.5% higher, building on last week’s rally. Wall Street’s fear gauge remained solidly pinned below 30 points on encouraging economic data and central bank stimulus.

“We are beginning to see evidence of economic data improving gradually and thankfully no major secondary spikes in infections. We expect that to encourage investors to come back to the market,” Vertimane added.

Hopes of a quick recovery in the US could however be quashed by mounting wave of protests demanding police reform after the killing of a black man, George Floyd, by police in Minneapolis.

The US jobs data pushed the 10-year Treasury yield as high as 0.959% on Friday, a level not seen since mid-March. It last stood at 0.929%.

The rise in US yields puts more focus on the US Federal Reserve, which will hold a two-day policy meeting ending on Wednesday.

“Steepening of the US Treasury curve reflects to a significant extent high [bond] supply versus QE [quantitative easing],” Nikolaos Panigirtzoglou, strategist at JPMorgan, said.

“The Fed at $4-5 billion QE a day is not doing enough to offset supply. It would become more challenging for the Fed if the 10-year... yield approaches 1%.”

Pointing to the spread between US two- and 10-year Treasury yields – an indicator of economic expectations – widening above 70 basis points to its highest since February 2018, Panigirtzoglou believes there is scope for Fed to introduce yield curve control measures.

In Europe, yields on top-rated German government bonds dipped but remained near the more than two-month highs hit last week after the European Central Bank expanded its emergency stimulus scheme.

Brent crude climbed 1.5% to $42.93 per barrel. US West Texas Intermediate crude rose 1.3% to $40.08 a barrel.

The broad improvement in sentiment weighed on the safe-haven Japanese yen, which stood at 109.5 to the dollar, near Friday’s 10-week low of 109.85.

The euro changed hands at $1.1303, after touching a three-month high of $1.1384 on Friday.